HSBC 2015 Annual Report Download - page 404

Notes on the Financial Statements (continued)
19 – Interests in associates and joint ventures
HSBC HOLDINGS PLC
402
Collateral accepted as security for assets
The fair value of assets accepted as collateral in relation to reverse repo, securities borrowing and derivative margining that
HSBC is permitted to sell or repledge in the absence of default was $222,065m (2014: $269,019m). The fair value of any such
collateral sold or repledged was $139,532m (2014: $163,342m). HSBC is obliged to return equivalent securities.
These transactions are conducted under terms that are usual and customary to standard securities borrowing, reverse
repurchase agreements and derivative margining.
19 Interests in associates and joint ventures
Accounting policy
Investments in which HSBC, together with one or more parties, has joint control of an arrangement set up to undertake an economic activity
are classified as joint ventures. HSBC classifies investments in entities over which it has significant influence, and that are neither subsidiaries
(Note 21) nor joint ventures, as associates.
Investments in associates and interests in joint ventures are recognised using the equity method. Under this method, such investments are
initially stated at cost, including attributable goodwill, and are adjusted thereafter for the post-acquisition change in HSBC’s share of net
assets. Goodwill arises on the acquisition of interests in joint ventures and associates when the cost of investment exceeds HSBC’s share of
the net fair value of the associate’s or joint venture’s identifiable assets and liabilities.
Investments in associates and joint ventures are tested for impairment when there is an indication that the investment may be impaired.
Goodwill on acquisitions of interests in joint ventures and associates is not tested separately for impairment.
Profits on transactions between HSBC and its associates and joint ventures are eliminated to the extent of HSBC’s interest in the respective
associates or joint ventures. Losses are also eliminated to the extent of HSBC’s interest in the associates or joint ventures unless the
transaction provides evidence of an impairment of the asset transferred.
Critical accounting estimates and judgements
Impairment of interests in associates
Impairment testing involves significant judgement in determining the value in use, and in particular estimating the present values of
cash flows expected to arise from continuing to hold the investment.
The most significant judgements relate to the impairment testing of our investment in Bank of Communications (‘BoCom’). Key assumptions
used in estimating BoCom’s value in use, the sensitivity of the value in use calculation to different assumptions and a sensitivity analysis that
shows the changes in key assumptions that would reduce the excess of value in use over the carrying amount (the ‘headroom’) to nil are
described below.
Associates
At 31 December 2015, the carrying amount of HSBC’s interests in associates was $18,900m (2014: $17,940m).
Principal associates of HSBC
2015 2014
Carrying
amount
Fair
value1
Carrying
amount
Fair
value1
$m $m $m $m
Listed
Bank of Communications Co., Limited 15,344 9,940 14,590 13,140
The Saudi British Bank 3,021 3,957 2,811 6,220
At 31 December 18,365 13,897 17,401 19,360
1 Principal associates are listed on recognised stock exchanges. The fair values are based on the quoted market prices of the shares held (Level 1 in the
fair value hierarchy).
At 31 December 2015
Country of
incorporation
and principal
place of business
Principal
activity
HSBC’s
interest
in equity
capital
Issued
equity
capital
Bank of Communications Co., Limited PRC1Banking services 19.03% RMB74,263m
The Saudi British Bank Saudi Arabia Banking services 40.00% SR15,000m
1 People’s Republic of China.
Details of all HSBC associates and joint ventures, as required under Section 409 of the Companies Act 2006, are set out on
pages 468 to 469.
HSBC had $15,344m (2014: $14,590m) of interests in associates listed in Hong Kong.